Markets have experienced shifting sentiment so far in this holiday shortened week, with optimism around easing geopolitical tensions continuing to compete with caution as developments in the Middle East evolve.
Earlier in the week, markets responded positively after US President Donald Trump said negotiations with Iran were “proceeding nicely”. Hopes that shipping routes through the Strait of Hormuz would remain open supported risk appetite and eased concerns around global energy supplies.
However, sentiment became more cautious after US forces carried out what the Pentagon described as “self-defence” strikes in Iran on Tuesday, targeting missile launch sites and vessels allegedly attempting to deploy naval mines. While the incidents highlighted the fragility of the ceasefire framework, markets have remained relatively resilient amid expectations that diplomatic discussions are continuing and broader escalation may still be avoided.
Encouragingly, sentiment improved again on Wednesday as oil prices fell sharply during afternoon trading. Brent crude dropped below $100 per barrel to around $96 after reports suggested Iran remained committed to restoring commercial shipping through the Strait of Hormuz to pre-war levels within a month.
In the UK, the FTSE 100 has remained relatively stable, supported by strength in retailers, financials and commodity-linked sectors. Lower oil prices have provided some relief for inflation expectations and helped support sentiment around the domestic economic outlook, even as investors continue to assess the likely path for Bank of England interest rates.
European markets have also held up reasonably well despite periods of volatility. Softer energy prices have improved the outlook for inflation across the region, while investors continue to focus on central bank policy and the resilience of corporate earnings rather than reacting solely to short-term geopolitical headlines.
In the US, technology stocks led the gains with semiconductor shares driving much of the momentum. Micron Technology surged almost 20% after UBS raised its target price for the stock, citing strong AI-related demand and significant further upside potential. The rally pushed the company’s market value above $1 trillion for the first time and helped lift both the S&P 500 and Nasdaq to fresh record highs.
Still to come this week US PCE, the federal reserve’s preferred measure of inflation and US durable goods orders.
Nicola Tune, Portfolio Specialist